Sixty-five years ago, history tells us the great question of American foreign policy was: who lost China?
In other words, who was responsible for the “avoidable catastrophe” that drove the Nationalists from the mainland and brought Mao Zedong to power?
Today, the question should be: what will China lose, if it attempts to resist global upheavals in finance and technology, culminating in the popularity and acceptance of Bitcoin as the ultimate form of digital, peer-to-peer currency?
The answer to that question will have a greater impact on the People’s Bank of China (PBC) than its existing restrictions on the use of bitcoin. In my professional opinion, China will gradually (and quietly) ease its policy involving bitcoins – which is a smart hedge against inflation and a chance for the government, and millions of merchants, to prosper.
I offer these words as an evaluation of China’s internal politics, its emphasis on projecting power throughout Asia and abroad, as well as the cultural traditions – millennia of customs based on preserving personal prestige, or “saving face”. Put simply, the government doesn’t want to make elements of its opaque economy transparent.
To do so could risk a collapse in commercial real estate within China’s mainland, or a precipitous drop in the value of the renminbi, or the withdrawal of foreign investment on an unprecedented scale.
But, and this point bears repeating because of economic reality and the necessity of diversification, China’s leaders do not want to concede its influence to, say, Japan, South Korea or the United States.
In fact, the PBC’s comments about bitcoin do not contain any intellectual arguments against the legitimacy or demand (by businesses and consumers) for this currency.
A careful parsing of the Bank’s official statement, from 5th December 2013, reveals the politics of this decision, in which the central bank says their policy is to “safeguard the interests and property rights of the public, protect the legal standing of the renminbi, take precautions against the risk of money laundering and maintain financial stability.”
Two of these final three factors – the value of the renminbi and control or balance of the economy – have everything to do with the challenges China faces, not flaws in the credibility or use of bitcoin.
Gradual acceptance and order: the Hong Kong model
Before I address the concern about money laundering, allow me to prove my earlier assertion about the gradual acceptance of bitcoin within China. Indeed, as I write this column, news reports claim Robocoin plans to open its second bitcoin ATM in Hong Kong.
My interpretation of this announcement is simple: despite Hong Kong’s status as a Special Administrative Region (“one country, two systems”) with its own independent judiciary, government and dollar, Hong Kong is, from the mainland’s perspective, undeniably part of China.
Meaning: the gradual introduction and proliferation of bitcoin within Hong Kong, as a matter of course and as a symbol of the fluidity of how currencies physically circulate (an American dollar bill has a lifespan of 21 months, for example, traveling between 30 and 500 miles in nine months in the States, according to Gizmodo).
All of these factors will lead to the opening of more ATMs and the piercing of the “Great Digital Wall of China,” which separates the mainland from Hong Kong and the PBC from the virtual world of bitcoin.
Other points about the legal standing of the renminbi (which is not in jeopardy) and financial stability (which could weaken) are a separate matter.
I return, therefore, to my argument about the gradual acceptance of bitcoin by the mainland because, confronted with rapid change or full disclosure about the actual worth of the renminbi, there could be a run on China’s banks and a series of economic shock waves – including the sale, by the PBC, of US Treasuries – resulting in global panic.
So, yes, the mainland has every reason to maintain order while discreetly buying bitcoins as a hedge against financial mayhem.
As for the threat of money laundering, which is an unfortunate phenomenon among all forms of currency, this crime is a far greater problem with fiat dollars than bitcoins. For purposes of comparison, the projected ceiling for the number of bitcoins is 21 million, while there are 107.74 trillion yuan (the primary unit of account for the renminbi) to cover cash in circulation and all deposits for the PBC.
To put things in further contrast, Global Financial Integrity estimates that $2.83 trillion flowed out of China illegally from 2005 to 2011. In a word, the complaint about bitcoin and money laundering is a sham.
If anything, the technology responsible for the mining and exchange of bitcoins is so sophisticated – and its security so encrypted and complex – it makes the production of fiat money look exactly like what it is: an antiquated system of metal plates, industrial printing presses, paper, cotton, linen and ink – to create 10,000 sheets of dollars for every two pallets, which make their way through the US Bureau of Engraving and Printing.
The choice is obvious, and the outcome is inevitable: China will loosen its restrictions on bitcoins. The government’s prudence and quiet diplomacy will allow bitcoin to gain acceptance within the mainland.
In doing so, we will speak of China’s great win, not the world’s loss.
Lion Sunset Image via Shutterstock